Satellite radio remains a promising growth industry. Just days after rival XM Satellite Radio (NASDAQ:XMSR) lowered its year-end forecast for the second time in 2006, Sirius (NASDAQ:SIRI) came through this morning with a second hike in its full-year outlook. Sirius is now looking to close out the year with at least 6.3 million subscribers.

The changing of the guard is starting to feel less than temporary these days. XM may have more subscribers than Sirius -- 7 million to 4.7 million -- but Sirius has landed more net new subscribers than its larger competitor in each of the last three quarters. The market has already discounted the transition. With a whopping 1.4 billion diluted shares outstanding, Sirius commands a $5.9 billion market cap, nearly double XM's current $3.1 billion market cap. Factoring in debt levels to arrive at enterprise values, or accounting for outstanding options, tweaks the sums -- but the disparity is still wide.

In a nutshell, XM investors stand to gain a good deal of ground if their company can regain the battle for new subscribers. That doesn't appear likely in the near term. With each provider's new year-end target, Sirius is looking to land 1.6 million net new subscribers in the second half of 2006. XM's wider range has it winning over 0.8 million to 1.3 million new accounts in that time.

There are reasons for each company to feel optimistic about nailing its own targets. Sirius has been on a tear since Howard Stern came on board in January. Yesterday, it announced a new distribution deal that will make its satellite receivers a standard option on all Mitsubishi cars sold stateside by the end of next year. XM got a lift last week when auto partner General Motors (NYSE:GM) announced far better results than concerned analysts were expecting.

Satellite radio as an industry continues to grow, and Sirius' second-quarter report this morning bears that out. Revenue nearly tripled to $150.1 million. Average revenue per subscriber improved, mostly due to gains in advertising revenue. Yes, Sirius posted a wider loss, but like XM, it expects the December quarter to be its potential breakthrough in turning cash flow-positive on an operating basis.

Satellite radio remains a mostly misunderstood sector, despite its obvious connection in the marketplace. It's a legitimate duopoly, far more appealing than the DirecTV (NYSE:DTV) and EchoStar (NASDAQ:DISH) duo that rule satellite television, because DirecTV and EchoStar have countless competitors in cable providers. Yes, consumers will never pay as much for audio content as for televised productions, but that also gives XM and Sirius the leverage to produce proprietary content or broadcast syndicated content cheaply.

These next two quarters will be huge for both satellite-radio stars. XM is banking on the arrival of Oprah Winfrey to help propel third-quarter subscriptions, and Sirius has its NFL contract to woo gridiron buffs as autumn sets in. More importantly, the adjusted cash flow milestones that the companies aim to hit may go a long way towards winning back jaded investors disheartened by the steep losses.

Watch this sector closely. At the very least, listen closely.

Rick recommended XM to Rule Breakers subscribers last year. The stock is currently in the red.

Longtime Fool contributor Rick Munarriz is a Sirius and XM subscriber, but he does not own shares in any of the companies mentioned in this story. T he Fool has a disclosure policy. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.